Home prices up again, but consumers less confident

NEW YORK (Reuters) - Home prices picked up in April for the third month in a row, the latest indication that a recovery in the housing market is gaining traction.

But in a sign of the struggles still facing the broader economy, separate data on Tuesday showed consumer confidence fell to its lowest level in five months in June as Americans’ expectations on the economy soured.

Compared to a year ago, home prices fell 1.9 percent in the 20 cities, above expectations for a decline of 2.5 percent, and an improvement from the 2.6 percent annual decline seen in March.

Six years after the housing market’s far-reaching collapse that sent prices down more than 30 percent, recent data suggests the sector has finally hit bottom with leaner inventories and record-low mortgage rates encouraging buying.

“The housing recovery in this cycle has been painfully slow to develop, but it is unmistakably here,” said Chris Low, chief economist at FTN Financial in New York.

April’s gain made for the longest streak of consecutive monthly gains since prices were boosted by the homebuyer tax credit from mid-2009 into early 2010.

“This time, unlike 2010 when the first-time homebuyer tax credit lifted sales, it is happening with only limited help from the government,” said Low.

Still, the housing market has a long way to go before full recovery as it faces a large pipeline of foreclosures, tight credit restrictions and weak demand.

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“The healing continues and we will eventually find ourselves with a normal-looking housing market,” said Eric Lascelles, chief economist at RBC Global Asset Management in Toronto.

“It’s still very much a multi-year process, but it’s heartening to see those home prices start to go up.”

Robert Shiller, co-creator of the S&P/Case Shiller index, was less convinced than some that it was a definitive sign prices have stabilized, saying it was encouraging but still too soon to tell.

“They’ve been falling for six years now, and people have been asking me this question for six years, and there’s always this sense that it’s about to turn up,” Shiller told Reuters Insider.

A home under construction is for sale in Great Falls, Virginia August 23, 2010. REUTERS/Kevin Lamarque

“Now I think we have a better real possibility that it actually will turn up.”

Even as the housing market is firming, the broader economy is struggling under the weight of a sluggish labor market and fears over the fallout of Europe’s debt crisis.

The Conference Board, an industry group, said its index of consumer attitudes fell to 62.0 from a downwardly revised 64.4 in May, falling short of economists’ expectations. It was the lowest level since January.

While consumers’ assessment of their current situation improved, they were less upbeat about their expectations for the next six months. Fewer respondents expected business conditions or employment would improve in the coming months.

“It’s the future they’re more scared about, and I can’t say I disagree with that concern given European problems, fiscal cliffs and all the various challenges that will present over the next six months,” said Lascelles.

The consumer confidence index is down nearly 10 points from the peak hit in February. Consumer spending -- a major engine of economic growth during the housing boom -- accounts for about 70 percent of U.S. economic activity.

Ian Shepherdson, chief U.S. economist at High Frequency economics, said that the expectations measure is sensitive to both the stock market and gasoline prices, but the time lags make it unclear whether the gloomier attitudes reflect a decline in stocks or the rise in gasoline at the beginning of the year.

“Either way, we don’t see much further downside, given that stocks have rebounded a bit this month while gasoline prices have plunged,” said Low.

Analysts expect the economic recovery will continue at a sluggish pace after growing at a 1.9 percent rate in the first quarter. Standard & Poor’s said the United States faces 20-percent odds of falling back into recession, although a slow recovery is still the ratings agency’s baseline forecast.

S&P cut the U.S. debt rating to AA-plus last year.

With the labor market disappointingly weak, the Organization for Economic Cooperation and Development gave a warning on the impact of long-term joblessness, saying it risks leaving a lasting scar of higher unemployment on the U.S. economy.

Financial markets saw little reaction to the data as investors had their attention on Europe ahead of a summit of leaders later this week.

Manufacturing activity in the central Atlantic region contracted in June, a report from the Federal Reserve Bank of Richmond showed.

Other regional manufacturing surveys, including New York and Philadelphia, also showed weakness this month, boding poorly for the national report on manufacturing due in early July.